Pound plunges
Sterling’s reaction to the government announcement was almost immediate and extreme.
The pound lost nearly 3.6% against the dollar on Friday and continued to fall on Monday as markets reopened. It hit an all-time low below $1.04 early Monday morning in London.
It has since recovered slightly, trading around $1.08 as of 8:30 a.m. Tuesday, but remaining at – until this week – a 37-year low. It was down from $1.35 at the start of the year.
While some supporters of the government’s plan have pointed to the dollar’s uptrend this year as the cause of the pound’s slide, the pound has also fallen against the euro.
The euro is currently trading around £0.89 – up from £0.84 at the start of the year – although the eurozone is facing significant challenges, from the energy crisis to the threat of a recession today. increasing.
Bonds move
Yields on UK government bonds have skyrocketed in the wake of government budgets – meaning their prices have plummeted (bond yields move inversely with prices).
Gilt yield is now set for its biggest monthly gain since at least 1957, according to a Reuters analysis of both Refinitiv and Bank of England data.
Productivity per 10 years old browhich affects mortgages and other loan rates, has increased from 2.882% to 4.073% so far in September.
Soaring yields and a plunging pound have prompted some mortgage lenders to halt new home loans and withdraw certain mortgage offers.
More interest rate hikes?
An important question now is whether the Bank of England, has interest rate increase from 0.1% to 2.25% over the past nine months, will be pushed into faster and higher growth.
On Monday, Governor Andrew Bailey speak the bank will “not hesitate to change interest rates when necessary.” However, he said a decision would be made at the next scheduled meeting in November, eliminating speculation of an emergency rate hike or intervention to support the pound.
The UK overnight index swaps market now shows an 80% chance of a rally to 3.5% i.e. a 125 basis point increase and a 20% chance of a further move higher to 3.75%.
